The Economy: The Holidays are upon us and All is Beautiful. Synchronized global growth, led by the US is producing some of the best economic numbers since the Financial Crisis of 2008. Donald Trump’s foreign policy speech has outlined an America First approach that should produce economic benefits. Congress has passed the first rewrite of the Tax Code in 3-decades. Financial markets are comforted to have another unknown out of the way. Corporate profits that have been held overseas are expected to flow back to the US next year and used for dividends/share buy-backs. Share buy-backs along with the expanding economy should bode well for stock markets in 2018. San Diego continues on its growth trajectory with high/med-tech, military spending, services and tourism helping to keep the downtown skyline full of construction cranes. Pessimists still call for circling the wagons. Optimists see the Endless Summer of perfect barrels.
Food for Thought: Merry Christmas and Happy New Year! Happy Holidays! It’s been a pleasure writing for you this year. … and what a year it’s been! 2017 goes down as one of the most excitement filled years in memory. Good Excitement; Bad Excitement; Real Excitement; Fake Excitement; Lurid Excitement; Questionable Excitement. How’er ya gonna keep ’em down on the farm after all that jazz. With markets heading into the 10th year of their rocket run, US mid-term elections, Brexit moving forward, Japan re-arming, a new Federal Reserve, Draghi on his way out, more central bankers tightening the screws, 2018 will be every bit as exciting as 2017.
Music of The Week: Dean Martin’s “The Dean Martin Christmas Album”
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The Economy: Sex, Taxes and Bitcoin; need I say more? As has been the case for quite a while, the US economy continues to go its own way on slow but steady growth. China is having some type of inscrutable implosion in the commodities sector; the UK is stumbling and fumbling around Brexit and the Middle East continues on its path of peace on earth and goodwill to all. For Americans it’s Ho Ho Ho as the scythe has swept through Hollywood, New York and now Washington. The Emperor has no clothes has taken on literal meaning. Ho Ho Ho on Taxes as Santa’s gift bag rains goodies from the sky. … and of course, HO HO HO for Bitcoin up 50% this month. It’s High Cotton! Merry Christmas, Happy New Year and Happy Holidays!
Food for Thought: Our Thoughts and Prayers go out to those enduring hardship this Holiday Season. From our men and women in uniform, separated from loved ones and facing danger; to those affected by the Southern California fires. Tis the season to count our blessings and be grateful.
Music of The Week: Rod Stewart’s “Merry Christmas”
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The Economy: On the surface things appear to be moving along quite nicely with synchronized global growth still the order of the day. Beneath the surface, changes are coming. Trump has appointed Powell as the next Fed Chair. He’ll take the helm in February 2018 and may not be the same as the old boss. With his Wall Street background, he has a different perspective. Likewise Japan where the government pension system has been authorized to invest hundreds of billions in global stock markets. Saudi Arabia is undergoing change with historic upheaval in the royal family. While the House of Saud may reap a $800 billion windfall from wealth confiscations, the end result may be the unprecedented end of support for terrorism and a rapport with Israel. Brexit continues to muddle through with calls for the end of the world becoming more muted over time. Mankind is in holiday mode as year-end approaches.
Food for Thought: After a rip-snortin’ run, stocks have taken a breather lately. Anything less than daily triple-digit gains are seen by many investors as signs of doom. Whether recent market action is the pause that refreshes or something more significant is best addressed by Donald Rumsfeld’s famous quote: “There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know.” Markets will either go up, or they will go down, or they will go sideways. Have a great weekend.
Music of The Week: Tamba Trio “Pure Bossa Nova”
The Economy: Consumer confidence surged; Everything home-building looking positive. The US continues to post impressive economic numbers. Though nay-sayers shout “Fake News” with every number that’s posted. All news is good news with individual investors finally beginning to pour money into stocks. Brexit, Trump, the rise of populism, the assault on globalism, immigration and the environment are no reason to slow financial markets still feasting on $200 billion a month in central bank stimulus. Repealing and replacing Obamacare was to provide billions in tax savings. Those savings were to be factored into the overhaul of the tax code. The narrative was that passage was a slam dunk. The subsequent fail produced a new narrative that Tax Overhaul would sail through regardless. Markets were thrilled that billions in lost tax savings no longer mattered. True to form, a massive rally followed the fail.
Food for Thought: The Trump phenomenon continues to unfold in stark black and white. Love him or hate him he is a phenomenon. Polarizing in the extreme, he’s brought out the worst in many. The main stream media (MSM), Hollywood, the UN, NATO and foreign governments seem to be the most shocked. Sacred Cows everywhere are in retreat. All concerned are becoming aware that POTUS is a brawler who enjoys taking the fight to the street. As a businessman The Donald understands that the best way to gut a program or department is to decapitate administration and cut or curtail funding. No money, no staffing, no decisions, no activity, no continuation of programs outside the Trump Agenda. Brilliant or Brutal depending on your persuasion. How this ultimately plays out is anyone’s guess. How the financial markets respond is also anyone’s guess. With the stroke of a pen, Trump is undoing decades of U.S. policy and redirecting national priorities and resources. Markets continue to treat these unprecedented events as a win for all sectors of the economy. The prime example is Climate Change. The administration’s position is, “We’re not going to spend any more money on that.” Yet the response of financial markets is that the trillions invested in this sector are going to continue on the same growth trajectory as when they were darlings. Reminds us of PT Barnum’s “There’s a sucker born every minute.”
Music of the Week: Jack Johnson’s “Jack Johnson”
The Economy: The Holiday Cheer keeps coming. Last week it was Happy Holidays! It’s all good: Home prices up 5% year over year. The U.S. economy expanding at the fastest pace in 3-years. Consumer confidence far above expectations. This week it’s Happy Holidays Again!! It’s all good again: ISM non-manufacturing index rose to 57.2 in November; above consensus. October factory orders rose 2.7% also above expectations. Durable goods posted a 4.6% increase once again above expectations. JOLTS revised higher. The incoming administration has a Santa Bag full of action items to move the US in new directions: Obama Care, immigration, deregulation tax code, infrastructure, trade, education, defense, foreign policy. Financial markets have priced in immediate passage and implementation of every utterance. What comes out of the sausage making we call the legislative process, is anyone’s guess.
Food for Thought: Rock On! Markets have been on a roll since the Trump election. This has the feel of a Triple: Post election relief rally, Year-end performance chasing and the traditional Santa Clause rally. Trump supporters have the stage as they advocate a sea change. Hillary fans continue the fight with promises of disruptions in the Electoral College. I’m all for Dedication to The Cause but that’s why we call tilting at windmills Quixotic. After 2-years of flat returns, stocks have jumped to new highs in the past 4-weeks. The markets took 3-days to shake off-Brexit, 3-hours to shake-off the Trump election and 3-minutes to shake-off the Italian election. We’re on track for the next event to have 30-seconds of impact. Complacency Rules so remember Icarus and don’t fly to close to the sun. Have a Great Holiday!
Music of the Week: Dean Martin’s “A Winter Romance”
The Economy: The Song Remains The Same. Global slow growth; China head-in-the-sand; Europe in Brexit Denial; the Russians ignoring sanctions to re-establish their traditional presence in the Middle East. Macro data seems to confirm a global economy that is continuing to slow. What this means at the local level is more difficult to determine. With 60% of the U.S. budget going to entitlements, there is direct taxpayer support for the U.S. economy. As the world’s 6th largest economy, California is awash in money. Yet, in our ongoing, informal poll, people continue to say, “I’m waiting for the other shoe to drop.” If this is optimistic-unease it may explain why most financial markets have gone nowhere for the past 15-months.
Food for Thought: Only 18-days till the Theater of the Absurd closes. One Champion is accused of being a Russian puppet. (Huh?!?) The other Champion is accused of being the darling of a corrupt Justice Department and the FBI. (Please!?!) In a more genteel age, “I am not a crook” and “I did not have sex with that woman” were seen as the epitome of lowbrow. No more. As the greatest economic and military power in history, as the world’s beacon of hope and enlightenment, we have set new benchmarks for gutter crawlers, petty dictators, morons and idiots.
Debate #1: Stupid
Debate #2: Stupider
Debate #3: Stupidest
Father, take this cup from me.
Music of the Week: Halie Loren’s “After Dark”
The Economy: More Cowbell! The Bank of England (BOE) cut interest rates for the first time in 7-years. It also expanded their Quantitative Easing (QE) program to include buying corporate bonds. While these moves would suggest that Brexit has raised the risk of recession, global financial markets screamed higher with the joy of more global monetary stimulus. The further increase of global cheap money should foster expansion in share buyback programs. This will create higher per share profitability without the need for capital expenditures. Hence More Cowbell!
Food for Thought: Traditional polling may have seen its heyday. Pioneered by Gallup, polling techniques rely on two basic behaviors: First, a population willing to subject themselves to interrogation by strangers. Second, a population thrilled enough to participate and provide truthful answers. Neither of these behaviors appear to be a given these days. Witness the Brexit miss; witness misses in the U.S. presidential primaries. Except for those with a vested interest, polls are increasingly dismissed as misinformation by most.
Music of the Week: Gabriela Anders’ “Bossa Beleza”
The Economy: Benign economic numbers continue to support the view that the U.S. economy is expanding at a moderate pace of about 2% annually. In the past this would be the cause of recession concerns. In today’s world 2% growth is cause for celebration. As we’ve said before, your personal experience, in this economy, remains your best indicator for how the economy is doing. Part of the difficulty in seeing consistency in the economic numbers, is that the numbers were designed decades ago to measure capital intensive industries like automobile manufacturing. It’s difficult to evaluate the information economy using tools designed for a different age. For example, despite the huge sums pouring into San Diego County from Pentagon and tourism spending, a recent survey found that the San Diego economy has contracted for the first time in years. Another sign of a possible slowdown is that Venture Capital spending appears to have peaked. … but June Gloom is gone and the sun sparkled surf is calling. So to quote Scarlett O’Hara, “I’ll think about it tomorrow.”
Food for Thought: No ho-hum dog days of summer this year. Brexit, Terrorism, Turkish Coups and the U.S. Presidential Conventions are providing a roller coaster of uncertainty. The uncertainty translates into more global monetary stimulus for longer. The tsunami of loose money flows into global stock markets. TINA is the new black. TINA (There Is No Alternative) makes the world go round. With interest rates at unprecedented lows, investors are chasing yield by jumping into stocks … because There Is No Alternative. As an investment philosophy, TINA is second only to Buy the Dip as the opiate of the masses. But, hey! … while you’re in the stratosphere swilling Cristal the ride is exhilarating. The sky is not falling, but we remain cautious about buying this market.
Music of The Week: Dave Brubeck’s “Time Out”
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The Economy: Fed Chair Yellen appeared before Congress this week; Tuesday before the Senate, Wednesday before the House. Hostility towards Yellen was palpable with House members reducing her to confusion and gestures of helplessness. Global distain for authority in general and Central Bankers in particular was evident in spades. But the Mother of All Events was the Brexit vote on Thursday. Pollsters and pundits got it all wrong with their incessant predictions of a landslide win for “Remain.” Flashing the Longbowman’s “V” the Brits moved to reestablish their national sovereignty and leave the EU. Financial markets crashed in shock and awe on Friday. (Only fools are going to buy this dip.) The uncertainty of Brexit was quickly on display. Though the process is supposed to take 2-years, British politicians began to call to immediately disregard many EU laws; particularly those on immigration and banking. Political parties throughout Europe began to call for Exit Referendums in their own countries. This is the death knell for the EU. Great Britain is the second largest economy in the EU. Saying the EU will survive is akin to saying that a marriage is still intact after one of the spouses has left after leaving an “I’m thru with U” note nailed to the front door. It’s gonna get messy.
Food for Thought: For over 70-years global bureaucrats and central bankers have pushed the secular, one-world agenda characterized by multiculturalism, globalization and the tyranny of the minority. These mostly unelected officials, while deriding the Divine Right of Kings, have ruled with the arrogance of dictators. They have ignored the social contract based on the consent of the governed. Brexit signals the beginning of the end of their failed reign. Despite the near universal, and very vocal, support of “Remain” by global politicians and despite the total support by the mainstream media for “Remain” the Brits revolted against the overlords and their propagandists. Political ramifications were immediate with British Prime Minister Cameron resigning. The ripples are beginning to roil outwards from ground zero with economic changes in the wind. If a slowing global economy, negative interest rates and the failure of global monetary policy weren’t enough, Brexit adds to the uncertainty that has so paralyzed Janet nd the Seven Dwarfs. However, we see opportunity in chaos. Contact us for how to protect your assets in the coming roller coaster ride.
The Economy: The Fed concluded its 2-day meeting today with its usual inaction. This time it was because “the labor market has slowed.” Next month it’ll be due to the shrinking icepack in Antarctica. TGISummerTime. The dull, monotone of the Fed press conference seemed to confirm that no-one expects anything from these Amos and Andy dissimulators. Financial markets rallied into the Fed’s press conference then reversed course and sold off at its conclusion. It was as if markets were rattling their sabers and shouting, “enough with the tofu, give us some real meat.” The message remains the same: The Fed doesn’t believe that the economy is strong enough to survive without continued support. If the Fed is right, then financial markets have no business being near all-time highs. If the Fed is wrong then markets should be much higher than they are. So who’s on first?
Food for Thought: BREXIT!!!!!!!!!!! British Exit. Next Thursday, June 23, our cousins across the pond will vote on whether to remain in the European Union (EU). Global markets will go haywire, regardless of the vote, before settling back into their somnambulant complacency. The EU was founded in 1951 and has never had a member state leave the club. Brexit will shatter the illusion of Union. It will also establish a guidebook for other nations itching to ditch Brussels. Great Britain has always had a love/hate relationship with its EU membership. Polls show about a 50-50 split on the issue with screamers on both sides saying it’ll be the end of the world. Britain has always been of Europe but not in Europe. So their disenchantment with EU monetary policy, immigration and unelected EU officials ruling by diktat has been brewing for a long time. Take note then retire to the beach to enjoy the summer.
Music of The Week: The Beatles “Rubber Soul”